Cyrus Mistry's dethronement sparks a new debate

A majority of management gurus and headhunters that ET spoke to said an internal candidate would be a better bet in the current scenarioSaumya Bhattacharya&Sreeradha D Basu | ET Bureau | Updated: October 28, 2016, 10:19 IST

Who would fit better at the helm of the Tata Group — an insider or an outsider?

As Tata Sons starts the search for a replacement for fired chairman Cyrus Mistry, a majority of management gurus and headhunters that ET spoke to said an internal candidate would be a better bet in the current scenario at the conglomerate that is the nation’s largest and one of the oldest.

"There is a long-term orientation that drives strategic decisions beyond the immediate balance sheet implications. The leader has to believe in the value of trusteeship and behave like a steward," he said. "Hence, it is difficult to find someone from outside who fits the bill."

At the group chairman level, it would benefit to have somebody who has an understanding of the strengths and challenges of the group, yet has the ability to be a change agent — as IIM-Ahmedabad director Ashish Nanda puts it — someone who understands the tradition but is able to look at the future with fresh eyes and is willing to ask the tough questions.

"Typically, people think external hires are better able to shake things up and bring change. But research says that often strong internal candidates are able to contribute meaningfully as well. This is because executives' performance is based on innate ability as well as how they fit the firm," Nanda added.

Nanda — along with Harvard Business School dean Nitin Nohria who is a director on the Tata Sons board and Boris Groysberg, professor at HBS — had published a Harvard Business Review study on the 'Risky business of hiring stars'. In that, they concluded that companies cannot gain any competitive advantage or successfully grow by exclusively hiring stars from outside. They should focus on cultivating talent within and do everything possible to retain the stars they create, it said.

"I don't know much about this incident, but generally in such situations, it depends on the strategy and context of the business," said management guru Ram Charan. “The selection committee has to look at the candidate best fit to lead the group into the future."

Some are of the view that it is not just the diversity of a group but the long legacy that is almost impossible for an outsider to imbibe. With businesses ranging from salt to software and hotels to steel, and nearly a century and half of history, at the Tata Group the boss will have to deal with both.

"An internal candidate will most certainly understand the culture, and therefore the challenges that emerge when there is any conflict around values and culture. The candidate will also have the benefit of (knowing the) history of what worked and what did not in the past, apart from credibility with the existing leadership teams in different group companies, the existing board and key shareholders," said Sangeeta Sabharwal, managing partner at Taplow Group India.

Concurs Atul Vohra, managing partner at Transearch India, too believes an internal candidate would work better at the Tata Group. "From what I understand from the Cyrus Mistry ouster, I think one of the failings has been in not being able to manage the cultural aspect of change management. I think an internal candidate would understand and manage that better."

A leadership expert at a top search firm, who did not wish to be named, has a different view. An external candidate can work well, he said, but integration of the external candidate into the culture and system of the conglomerate is key.

There is value in both insiders and outsiders, but often hiring firms tend to overestimate outsiders and underestimate the impact insiders will have, said IIMA's Nanda. "If an organisation is in a rut and people are unable to innovate and think creatively, then it helps to bring in an outsider. However, if you want to build on existing resources and platforms, an internal candidate would be better."

Smita Anand, a leadership adviser and executive coach, said the issue needs to be looked at beyond the insider-outsider perspective. "The characteristics the group will need in a new chairman need to be assessed very strongly: someone who can move a huge machinery; bring back balance between growth and efficiency; have a bottom line focus; be able to influence and bind stakeholders, build relationships and be a brand in himself. It's also someone who can retain the old ethos and still bring in the new and the different. Whoever the new candidate is, needs to be rigorously evaluated for all this."

According to the people ET spoke to, beyond the debate around external versus internal candidates is the need to have strong succession planning.

Companies which have strong succession planning ensure that there is a healthy slate of candidates who are constantly exposed to changing global perspectives. “Change is traumatic and in any corporate, should not come as a surprise. In a relay, passing the baton is as important as running the race,” said Gita Dang, founder-director at Talent Advisory Services, a boutique executive search firm.

Agrees Anand. "The conversation around succession planning should have started on Day 2 after the new chairman came in, and it was up to the incumbent to lead the charge. That is what speaks of strong governance practice."